Gasoline could fall below $2 a gallon in the coming weeks, driven by oil prices that are plunging after major producers failed to agree to a plan to prop up crude prices this weekend and by fears of declining energy demand due to economic disruptsion from the coronavirus.
The national average price of gas was $2.38 on Monday, according to AAA. That was down 6 cents from a month ago at a time when gas prices are usually increasing in the lead-up to the summer travel season.
Gasoline is refined from crude oil. Driving the commodity downward was the fact that the Organization of the Petroleum Exporting Countries and Russia could not come up with a plan to hold up crude prices this weekend.
“We are likely heading into an oil price war,” DNB Markets senior oil analyst Helge André Martinsen wrote Monday in a research note.
Crude had already fallen sharply in recent weeks as investors feared a massive surplus of oil and declining demand over the global economic effects of the outbreak.
The price of West Texas Intermediate oil, the U.S. benchmark crude, was down 22% to $32.11 per barrel shortly before 7:30 a.m. The commodity was trading above $50 as recently as about two weeks ago. It was above $60 when the year began.
“There’s so many cliches I try to avoid – unprecedented, shocking, we haven’t seen this before – but this is really a moment that will live up to the meaning of unprecedented,” said Patrick DeHaan, head of petroleum analysis at fuel-savings app GasBuddy.
He said the national average price of gas could fall below $2 in the coming weeks if coronavirus fears continue and the global surplus of oil doesn’t contract.
“For sure, every state in the nation is going to be experiencing falling prices over the next couple of weeks,” DeHaan said.
The last time oil prices plunged this low was the fourth week of February 2016, according to the Oil Price Information Service. At that point, gas prices nationwide averaged $1.73 per gallon, according to the U.S. Energy Information Service.
Why are oil prices falling?
For one thing, if drivers drive less and travelers fly less due to fears stemming from the outbreak, that leads to less oil demand. And less demand means lower prices.
The International Energy Agency projected Monday that global oil demand would decline slightly in 2020. The agency had previously predicted a slight increase in oil demand this year.
“The situation remains fluid, creating an extraordinary degree of uncertainty over what the full global impact of the virus will be,” the IEA reported. “In the IEA’s central base case, demand this year drops for the first time since 2009 because of the deep contraction in oil consumption in China, and major disruptions to global travel and trade.”
In a worst-case scenario, the world could be facing a “much worse” surplus in oil than it experienced in 2015 and 2016, according to JBC Energy. In early 2016, gas prices averaged less than $2 per gallon nationwide for about two months, according to the EIA.
DNB’s Martinsen said the conditions are ripe for “a massively oversupplied oil market.” He projected average oil prices of $40 per barrel for the second through fourth quarters.
Eventually, he said, oil production would likely decline in parts of the world, leading oil prices to pop back up.
“As always, the best cure for low oil prices and an oversupplied market is low oil prices,” he said.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.